The Hong Kong stock exchange has censured Xinyuan Property Management Service and four of the company’s former directors, including the husband-and-wife team behind New York-listed parent group Xinyuan Real Estate, for breaking rules governing connected transactions.
Under an agreement reached with the bourse, Xinyuan founders Zhang Yong and Yang Yuyan, as well as former executive directors Wang Yanbo and Huang Bo, have vacated all directorships and management posts held at the services unit, according to a statement issued Monday.
In the exchange’s opinion, “had Ms Wang and Mr Huang remained on the company’s board of directors, the retention of office by them would have been prejudicial to the interests of investors”, the statement read.
In addition, Zhang and Yang agreed that they would not use any shares, voting power or position they hold to influence the business and operations of the services unit, including decisions involving transactions with the parent group.
Propping Up the Parent
The sanctions concern 11 transactions totalling RMB 570 million (now $81.7 million), with the services unit conducting 10 notifiable and connected transactions with the parent and its subsidiaries and one transaction via a joint venture company in which the services unit held a 51 percent interest with the parent’s subsidiaries.
The transactions took place from March 2020 to February 2021 and involved outgoing sums ranging from RMB 20 million to RMB 120 million, mostly in the form of money transferred from the services unit to Xinyuan Real Estate for the benefit of the parent group, the HKEX said.
At least seven of the transfers constituted discloseable connected transactions for which there was no written agreement setting out the terms, the parties agreed.
The bourse noted that Zhang and Yang occupied significant roles at both the services unit and the parent group. Zhang is chairman, executive director and CEO of Xinyuan Real Estate, while Yang is a director. Together the couple held a 55 percent stake in the NYSE-listed parent at the time the transactions were made.
“Given their roles, they knew or ought reasonably to have known about the relevant transactions at the time,” the HKEX said.
The wrist-slaps handed down by the exchange come after Xinyuan Property Management Service opened an investigation last month into RMB 402 million ($56.8 million) in loans that its parent group obtained by pledging bank deposits held by the services unit.
The probe followed a house-cleaning that saw Zhang and Yang resign from the services unit’s board of directors. As recently as April of this year, the pair were listed as non-executive directors of Xinyuan Property Management Service, with Zhang serving as chairman.
On 7 September, however, executive director Feng Bo announced that Zhang had resigned as non-executive director on 29 August and ceased to be the authorised representative of the services unit.
The board confirmed on 19 September that independent non-executive director Shen Yuan-ching had been re-designated as chairman, executive director and CEO of the company with immediate effect.
Xinyuan Real Estate announced last week that during the third quarter it had completed and delivered six projects in six cities in China with a total area of 292,000 square metres (3.1 million square feet), “in spite of numerous market-wide difficulties and constraints”.